Chances of another boom and bust

Robert Goldman talks about inventory, price increases, the effect of funds in the market and, yes, the future

By JOSH SALMAN

Robert Goldman knows the ins and outs of real estate.

Beginning as an assistant attorney general and prosecutor in Rhode Island, Goldman shifted gears and opened his own real estate practice, becoming outside general counsel to the Rhode Island Association of Realtors.

As a title insurance agent, he has closed more than 30,000 transactions, while also developing commercial real estate centers. That laid the foundation for Goldman to become a Realtor in Florida, when he built a home in Venice with his wife in 2002.

What started as a part-time retirement gig -- with a lot of golf -- has now become a full-time career. Within two years, he has become one of the top sellers in brokerage Michael Saunders & Co.'s office of 45 agents. Through the first eight months of this year, he has closed 36 transactions that had a total dollar volume of more than $8 million.

The Herald-Tribune spoke to Goldman about the current real estate market and its future.

Q: What is behind the recent buying binge, and do you expect it to continue?

A: I know there's all this talk about hedge fund investors inflating prices through their purchases. It's true, although it really evidences itself in the "lower end" of the market.

But over the $200,000 price point, I don't see that as the real issue. The fact is we've had a cork on the bottle for six years. So it's only natural that there would be a spurt after being bottled up for so long. That is the 15 percent price appreciation we've experienced since January 2012. But 10 percent annual appreciation is not sustainable in an economy that historically grows at 2 to 3 percent per year. A slow down has to come. If it doesn't, the next boom and bust is around the corner.

Q: Do you foresee a lack of inventory becoming a major problem?

A: I wouldn't define it as a problem. Low inventory is actually aiding and abetting the increase of prices; it is permitting sellers who are prepared to sell to do so, cash out and move on; it is permitting buyers who are able to do so to get in the market.

I believe inventory will stay low for the next two to three years, because more sellers are unable to sell due to their indebtedness or belief that prices are going to run up. By 2016, we'll be within 15 percent of the 2006 price high.

At that point, if the economy is not on strong footing -- based on a strong and unmanipulated consumer demand and inherent ability to create and consume -- then we risk an additional one-year run-up in prices, and then a boom and second bust.

Q: Why have new listings been slow to enter the market?

A: Prices depreciated so much, in excess of 50 percent. On average, homes sell every seven to eight years, but since the last bubble it has been reported to be, during the current cycle, more like 11 years. So seven years ago was 2006, the height of the boom.

A 2006 buyer, who is a seller today, is underwater. That's why most sellers aren't in a position to be able to sell, unless they either have to or have decided to move on with their life. Taking it out 11 years, from the boom and bust of 2006, brings us to 2017. That 2006 buyer won't be able to sell, at a break even or modest appreciation, until 2017.

Q: Much has been made of the increased activity for institutional investors, like Blackstone, buying homes for residential rentals. Do you see this trend as a positive or negative for the long-term health of the market?

A: I think they are likely going to cancel themselves out. I believe the Blackstones of the world are going to find themselves treading and, in some instances, drowning in water. Their investment in real estate is not long for this world.

Owning real estate, unlike securities, is not an easy thing -- it certainly, unlike securities, is not a paper thing. You are dealing with real property and real people, physical, tangible objects which are easily wasted, depleted and destroyed. How do you effectively manage that?

I think they're in over their heads. They're pushing the thrill of temporary high yields, which can't be approached with other investment vehicles, onto their investors. It is a house of cards. Managing an apartment or office complex is tough enough. I know. I do it. Managing disparate single-family houses all over the country? Good luck.

Q: Recent price growth and the prevalence of cash deals have made it more difficult for many working-class people to buy a home. Do you believe this market is becoming unaffordable for many average people?

A: Sure it has, as hedge funds have knocked many first-time home buyers out of the market.

We know home ownership is a major component in creating a stable, safe, vibrant and self-reliant community. For anything to last, it has to be earned. But if artificial roadblocks are put in its way, through predator investors, that cannot bode well for the greater community. Its impact is self evident.

Q: Are we headed for another housing bubble?

A: If real estate continues at a 10 percent annual appreciation rate, then, yes, a bust is forthcoming. But I don't think so. However, it does require the private and public sector to get their act together. Now that's a tall order, but no taller than anything else we've faced. What it takes is leadership, cooperation, tenacity and trust.